solomon lew the buyer

RETAIL magnate Solomon Lew has quietly accumulated a strategic stake in Australian Pharmaceutical Industries, lending a further twist to the impending shake-up of the drug distribution sector.
Mr Lew is understood to have bought around 10 million shares in API, or 4 per cent of the company, over recent weeks - before the sale of his stake in Coles to the Wesfarmers bidding consortium on Monday evening.

A spokesman for API told The Australian last night he had heard the Lew rumour but had no comment. Mr Lew's spokesman was unavailable for comment.

Market sources said last night Mr Lew's interest in API was more likely to be in anticipation of another bid from the likes of Sigma Pharmaceuticals rather than a precursor to a full takeover bid from Mr Lew himself.

Rival pharmaceutical distributor Sigma pitched an offer of $2.50 a share to API last year but pulled it when API released an earnings downgrade. It subsequently came back with $2.20 a share, which was dismissed by API's major shareholders, in particular, Washington H Soul Pattinson & Co.

Although SoulPats, which owns 22 per cent of API, knocked back last year's approach from Sigma, chairman Robert Millner said only last week that he would respond more favourably to a new offer.

"It's a very difficult business, the pharmaceuticals business, a very low-margin business, and on top of that you've got the Government screwing you on the top with the PBS (Pharmaceutical Benefits Scheme). And you've got your natural increases in wages and fuel costs and things like that."

The other two major institutional holders are Harris Associates and Schroders. Between them the top three on the API register have 35 per cent. Well-known criminal lawyer and investor Chris Murphy bought in when API was on its knees last year and owns around 8 per cent. Much of the selling has come recently from merchant bank Investec.

API had its annus horribilis last year following the aborted takeovers from Sigma, the revelation of a $17 million black hole in its accounts (put down to a computer problem), the exit of its CEO, two earnings downgrades and abnormal losses of $24 million.